Who says subscription music services are dead?

June 24, 2009

Consumers have been slow to embrace music subscription services, so much so that Napster recently slashed its price by more than half to try to spur growth. Even services that colleges offered for free (or with the charge buried in other student fees) failed to catch on (killing off start-ups Ruckus and Cdigix), a testament to the enduring popularity of music-sharing and free downloading on campus. But one music industry player says it’s actually “extremely successful” with a subscription music-on-demand service for the college market. That would be Naxos, which specializes in…classical music. And it’s prices aren’t cheap, either.

This is a lesson in the value of finding the right niche in a time of technological upheaval. Naxos is both an independent classical-music label and a distributor of classical music. That’s classical as in Charles Ives symphonies, not John Williamssoundtracks (which Naxos of America Chief Executive Jim Selby refers to as “crossover” classical). Using music from its own and its customers’ rosters, it put together a service called the Naxos Music Library that’s both an online jukebox and a classical-music database. (Note: the service offers no downloads, tethered or otherwise. It’s streaming only.) “The metadata is incredibly deep,” Sean Hickey, sales and business development manager for Naxos, said in a recent interview. That information—which is comparatively sparse on other services—is crucial to Naxos’ target audience: music students, educators and musicians. They pay $220 to $240 a year for the service (which is sold only in bundles of five or more subscriptions), compared with $60 for Napster’s music-on-demand offering. Selby said Naxos has signed up more than 1,000 colleges and universities for the service, collecting hundreds of thousands of subscribers there. Subscription sales are up 35% year over year, Selby said. It helps that there are more than 600 accredited music schools in the U.S., as well as music degree programs at many other institutions. The company is offering the service to younger students too, having just signed up the public school systems in Baltimore and Chicago. “It’s not Rhapsody, but it’s not meant to be,” Selby said. “There’s lot of educational tools on there…No one else is trying to do that.”

By the way, Naxos claims that the Naxos Music Library is prospering with no contributions from the major record companies.

The subscription service is just one of the company’s efforts to attract and retain a new generation of customers. It’s made about 350 podcasts that combine music and commentary from authoritative sources. Every member of its 12-person marketing staff is blogging about releases and performances, commenting on other blogs and Twittering, Selby said. So are many of Naxos’ artists, who the company encourages to self-promote through social networks. “A lot of the things the pop guys are doing, these guys are doing as well.” He hasn’t seen a way yet to sell music through the likes of Facebook, and he’s not sure how it could be done. But those networks are a good way to spread reviews, which are still the biggest driver of Naxos’ sales, he said.

It also supplies tracks to online stores and has one of its own—ClassicsOnline.com. One problem that vexed Naxos and other suppliers of classical music was the 99-cents-per-track business model at iTunes and its ilk, which priced entire symphonies and other lengthy classical pieces the same as a two-and-a-half-minute pop song. Naxos’ response was to offer longer pieces only as part of a full-album purchase, not individual sales. This year, though, the company is offering individual works for sale with prices scaled to the length of the piece. The new offer may not matter much to “core classical buyers,” who want the whole album anyway, Selby said. But it should help attract casual fans, who are an important source of growth for the genre.

Naxos has thrown itself into digital distribution despite the fact that its CD sales haven’t slumped as badly as those in other genres, Selby said. Classical music fans haven’t been as quick to shift to MP3s, nor has Naxos been reliant on the big-box retailers that have cut their support for CDs. (Most of the company’s sales are through online retailers that specialize in classical music.) That helps explain why the company had its best year ever in 2007, and was on track to top those results in 2008 until the bottom fell out of the economy. This year looks good so far, Selby said, with first quarter sales in line with 2007 and April and May’s results even better. Here’s hoping that its results are a leading indicator for the economy in general.

All Naxos Historical, Naxos Classical Archives, Naxos Jazz, Folk and Rock Legends
and Naxos Nostalgia titles are not available in the United States and some titles
may not be available in Australia and Singapore because these countries have copyright
laws that provide or may provide for terms of protection for sound recordings that
differ from the rest of the world.